The beast in the bush

A hungry predator stalks Africa

ON FEBRUARY 11th the world's most successful retailer came a step nearer to establishing a presence in Africa. South Africa's Competition Commission approved Walmart's proposed acquisition of a 51% stake in Massmart, a South African firm that owns 265 wholesale and retail stores in South Africa and 25 more in 13 other African countries. Massmart's shareholders love the 16.5 billion rand ($2.3 billion) deal: 98% of them voted to approve it last month. But South African unions view it like a charging rhino in a narrow alley.

The American giant will bash unions, cut wages and drive more humane employers out of business, shop stewards predict. They also fear that it will source cheap products from China instead of buying locally. Mere talk of the merger has already destroyed “thousands of jobs”, they claim, by forcing other South African retailers to lay off workers and make working conditions worse in preparation for the great American onslaught. The Congress of South African Trade Unions, South Africa's biggest union group, has threatened to stage “the mother of all boycotts” of Massmart products and a strike at all its stores if Walmart takes over.

The Competition Commission is sceptical of the unions' claims. It said it had received assurances from the merging parties that they would honour existing union agreements, abide by South Africa's tough labour laws and source most of their products locally. Massmart insists it has no plans to make any lay-offs. On the contrary, it says it plans to open 54 new stores (net) over the next three years and add 6,300 new hires to its 27,000 employees. Further objections from South African unions and others will be heard by the Competition Tribunal, another official body, next month. It, too, is expected to rule in favour of the deal.

Ten years ago Massmart, which is South Africa's leading wholesale warehouse business, decided that it needed a global partner. Walmart began sniffing around South Africa three years ago, seeking a toehold on a continent where consumer spending power has risen sharply in the past decade.

The obvious partner was Shoprite, Africa's biggest grocer. But Massmart increased its allure by rushing into the food-retailing business, and the gamble paid off. Massmart now has 40 grocery stores in South Africa, with many more in the pipeline, and has become the country's third-biggest food retailer. If the merger is consummated, Massmart will continue to trade under its old brand names, such as Game, Makro, Builders' Warehouse and CBW.

But beyond this, the Beast of Bentonville is cagey about its plans. Walmart says it aims not to change Massmart's strategy, but simply “to put the foot on the accelerator”. It may be a heavy foot. Walmart did not become a $200 billion company without running down a few pedestrians. Few doubt that it will use all its skill and muscle to reduce prices and woo shoppers. It may stumble for cultural reasons, as it did in Germany. But if it succeeds, the effects may be profound.

South African retailers such as Shoprite, Pick 'n' Pay, Spar and Woolworths are highly sophisticated and offer a fine array of fresh food, at least in the big cities. But they cannot match Walmart's scale, global sourcing network or logistical brilliance. So there is a chance that Walmart will reduce prices so much that it affects the national inflation rate, as it has in America. At a time of painfully surging food prices, that would be a hefty boon for the needy. But it won't please everyone.